In Virginia, we classify property as either marital, separate, or hybrid before we divide it in divorce and, mostly, that comes down to looking at when and how the asset was earned, purchased, or acquired.
Things earned by the partners to the marriage themselves during the marriage are usually marital but other things – whether they were earned, purchased, or acquired before, during, or after the marriage – can be categorized as separate property. Separate property is not divisible in divorce.
Assets like inheritance or a trust fund are usually categorized as separate property, even if the partner with an interest in them came into that interest during the marriage. Because the inheritance or trust fund is someone else’s money – and didn’t result from the effort of the parties during the marriage – it’s not marital in nature. Or, at least, it’s not marital to start.
How do you keep your separate asset – specifically your inheritance – separate from your spouse for the purposes of divorce?
-
Inherit by yourself, in your sole name.
Whether it’s a will or a trust, you’ll want the original document to specifically say that you – not you and your husband jointly – are inheriting. Ideally, you’d have a conversation with whoever you know (your parents, grandparents, aunts, uncles, etc) that may leave you a bequest and specifically request, if they don’t know to do so already, that whatever you inherit be inherited by you alone. Ask that they not leave anything jointly to you and your husband.
-
Do not commingle your inheritance with marital money.
Commingling is essentially sloppy money management. If you inherit a sum of money, don’t just put it in the joint marital bank account and then expect to withdraw that same sum when you leave the marriage.
Example: You inherit $100,000. You deposit your $100,000 into a joint checking account with an existing balance of $100,000, making a total of $200,000. From that account, you pay for things – bills, travel, eating out, subscriptions, mortgage, etc. You both also receive your paychecks, get tax returns, and receive the occasional gift from friends or family, which all funnel through the same account. Everything is good.
Then, you separate. Even if you still have $200,000 in the account on the date of separation, how can we tell that $100,000 of it is money that came from the inheritance, or whether you spent the inheritance already and the money in the account is the jointly earned money from your paychecks? Answer: we can’t. So, don’t do this.
You would also have commingled it if you spent it – like to pay back your partner’s debt. Unless it was a loan intending to be repaid (ideally with appropriate written documentation), you’re not likely going to be able to convince a court that it was not just a gift from you to him. So, if you spend your $100,000 paying off your then-husband’s student loans, you may be SOL.
-
Make sure you can trace money back to its origins.
Sometimes, even if it’s sort of commingled, we can trace it back to the original document, like the will or the trust.
Let’s say you used your $100,000 as a down payment on a house. That money is still there – still traceable, still accounted for – even if you then made joint mortgage payments on the home thereafter.
It’s even traceable if you sold that house, used your $100,000 (and any resulting equity) and purchased a second house (or a third, or whatever). If you’re rolling that same money down the line, we can account for it later. It’s not mixed like it would be in a checking account, even if it technically sort of ‘touches’ marital money, too.
We can separate out the marital portion and the separate portion and apportion the equity accordingly. Just make sure you have your documentation in order showing the original trust/will documents, the transfer from wherever you kept that money (that was not a joint account) to pay the down payment on the first home, etc., on down the line depending on how many transfers have happened.
It’s messy but not impossible when you put it into something like an investment account or a piece of real estate.
You need every possible penny when things don’t work out in your marriage – and that’s probably exactly what whoever left this inheritance for you intended to do. Protect you. Give you a windfall. Allow you some financial freedom.
You don’t want to mix or commingle it with your soon-to-be ex-husband, so take steps to make sure that you don’t! Knowing what you can do and how to protect yourself is always the first (and best) step.
For more information or to register to attend an upcoming divorce seminar, give our office a call at 757-425-5200 or visit the website at hoflaw.com.